Today's FX Comment

July 24, 2024 

Good morning. I read today that Celine Dion will be paid $2million for performing one song at the Paris Olympics opening ceremony this Friday. It is nice to see Celine make her comeback, I just really hope the one song isn't her cover of AC/DC's "You Shook Me All Night Long" - not a good one.....

This morning it is a case of risk sentiment being shaken all night long (how's that for a segue?) with equities a sea of red everywhere. It kicked off after the bell yesterday where Alphabet beat earnings estimates but the market took a glass half empty view with respect to YouTube earnings with the stock fluctuating in the overnight session and trading a bit lower pre-market open this morning. The bigger driver (pardon the pun) was Tesla though. Tesla shares are down 8% premarket after an earnings miss last night and a warning that their robotaxi service would be delayed.

Asian indices have struggled most of the week after China's Third plenum came up short on concrete stimulus plans and of course the Tesla miss didn't help things overnight with markets softer across the board. China’s Shanghai Composite briefly fell below the 2900 level for the first time since February before clawing its way back a tiny bit to finish just above the level. It is now down about 8.5% from its May high and sentiment remains shaky to say the least.

European indices are all lower this morning as well with tech earnings dragging shares lower. Softer German/French/EU PMI data today isn't helping sentiment much either with the manufacturing data in particular pointing to a slowdown in the Eurozone.

As you might guess, futures point to a lower open in North America with the market firmly focused on the weaker Tesla results. We will get a look at some US PMI numbers later this morning and we'll see if the data can break the string of mostly discouraging PMI prints we saw in the overnight session. On another note, politics remain front and center with Israeli Prime Minister Benjamin Netanyahu addressing Congress this afternoon and President Biden set to address the nation later this evening. For those of you who have your "Trump trades" all set, not so fast, latest polling data from Reuters/Ipsos gives Kamala Harris a 2 point lead over Trump (44% to 42%). Buckle up, it is going to be a long and random Tweet filled three and a half months. Maybe FX vol is getting close to bottoming.

FX thoughts: Old school day, Yen and CHF benefiting from risk off, a bit surprising maybe the broader US Dollar isn’t doing better ex-those two currencies.

JPY - We've been saying it for a while, we'll say it again: stretched short Yen positions, hedge fund liquidation, FX intervention, the BOJ maybe hiking next week while the Fed is getting ready to cut, Trump comments on a weak Yen, you add it all up and it tells me that if you are long USDJPY it is time to cash the chips in.  I think political pressure is mounting on the BOJ to hike next week to help support the currency as the weak Yen is contributing in large part to a cost of living crisis in Japan. For the first time in a long time the market may have shifted from buy dips in USDJPY to sell rallies. Somewhere between 151.53 (200 day MA) and 151.86 (May 3 low) is the next downside target.

AUD - The Oz is under just a bit more pressure this morning and came close to testing support at .6580 overnight. In the very short run not much is helping, concerns around China's economy, weaker equities and softer metals prices sure don't support. Last night Australian PMI data was a bit softer than expected (although still expansionary) but the details might not make the RBA happy with a noticeable jump in service industry input costs (the index hit its highest level since last November) that likely means services inflation isn't slowing anytime soon and the prospect of another RBA rate hike can't be taken off the table yet. You need equities to stabilize for AUD to bounce.

EUR - We saw weaker than expected manufacturing PMI data out of France, Germany and the EU earlier this morning although services PMI is holding up and remains expansionary everywhere. Maybe a bit of a surprise the data has had little impact this morning with nearby support at 1.0840 bending but not breaking so far. Of course, a September ECB rate cut was already expected, today's numbers just solidified things for the ECB. Too early to start thinking about the October meeting right now.

GBP - Unlike the Eurozone, the UK PMI data was solid this morning with manufacturing surprising to the upside. Maybe the forecast that we noted yesterday (GDP acceleration next year + falling inflation+ rising real incomes) isn't so far fetched. UK PM Starmer and EU Commission President Von der Leyen are set to meet in late August/early September to drive an UK-EU "reset", maybe another positive for Sterling. Nearby support 1.2890.

CAD - The big day is here, the Canadian Dollar takes center stage with the BOC rate announcement. A rate decrease is all priced in by the market and all major Canadian banks are calling for a cut so the focus will be more on the Bank's forecasts and the Macklem presser. Expect Macklem to try to strike a balance between providing the economy needed interest rate relief and while not being dismissive of lingering inflation risks. While he’s likely to reiterate it’s ‘reasonable’ to expect further cuts, there will be a continued emphasis on data dependence and more talk of easing ‘gradually’. I would also think Macklem is aware that the Canadian Dollar is at a bit of a critical juncture. The YTD high isn't far away at 1.3846 and I don't think the Governor would be too pleased with a break higher as we know a weaker Canadian Dollar is inflationary. Maybe the Governor errs a bit on the less-dovish side today to help the currency? Certainly he'll want to be careful about being overly dovish and promising too many rate cuts -  you also don't want to re-ignite that housing market that is slumbering right now…Initial support 1.3730 followed by 1.3665. Remember, the market is already short the Canadian Dollar, that may limit moves higher in USDCAD.

Good luck.